RIVN plunges 9% on $1.5 billion convertible debt offering

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  • Rivian stock sells off 9% after company initiates $1.5 billion convertible bond sale.
  • If total debt offering eventually gets converted into common stock, existing shareholders may face 7.7% dilution or more.
  • Rivian produced more than 16,000 EVs in Q3, beating consensus on deliveries.
  • Rivian will offer an additional $225 million in bonds to initial purchasers if demand is there.

 

Rivian (RIVN) stock has placed its shareholders on a rollercoaster ride this week. The electric vehicle (EV) producer known for its pickup trucks surged 9.2% on Wednesday only to plunge another 9% in the post-market session when it announced a $1.5 billion convertible debt offering. 

These types of offerings allow the holder of the debt to convert it into equity, thus are treated as dilution risks. Rivian stock is losing ground in a session that looks mixed. After Wednesday saw investors crowding back into equities amidst a two-month-long downtrend, NASDAQ 100 and S&P 500 futures are mixed but largely flat. Treasury yields are also mixed but placid.

Rivian stock news: Extra $225 million could be added to convertible bond sale

Rivan’s share price predicament is rather predictable. The market usually treats companies with disdain that issue convertible bonds since they are akin to issuing new shares. Fellow Chinese EV automaker Nio (NIO) just raised $1 billion via convertible bonds two weeks ago, and the company’s shares crashed over 17% on the news.

Rivian is initially selling $1.5 billion worth of convertible bonds that mature in October 2030, but its press release also states that it will give initial buyers the right to purchase up to an additional $225 million worth of convertible bonds in the 13 days following the initial sale.

If all $1.725 billion worth of bonds get converted into shares at a later date, then this activity would dilute shareholders by about 7.7%, based on Wednesday’s closing market cap. Of course, the market will change by the time of conversion, so the actual dilution could easily be more or less. 

According to the statement from Rivian: “The notes will be redeemable, in whole or in part (subject to certain limitations), for cash at Rivian’s option at any time, and from time to time, on or after October 20, 2027 and on or before the 20th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of Rivian’s common stock exceeds 130% of the conversion price for a specified period of time.”

The conversion price and the coupon rate of the bonds are not yet fixed. Two weeks ago, Nio sold six-year convertible bonds with coupon rates of 3.875% and seven-year bonds with a rate of 4.625%. US Treasuries have seen their yields increase in the past two weeks, so the expectation is that Rivian will have to pay higher interest rates than Nio.

On Monday, Rivian reported third-quarter deliveries that rose 140% from a year ago. The company beat the delivery consensus of 14,900 vehicles with 15,564 delivered in Q3. At its production factory in Normal, Illinois, Rivian produced 16,304 vehicles during the quarter and is on pace to meet its 52,000 production goal for 2023.

EV stocks FAQs

Electric vehicles or EVs are automobiles that use rechargable batteries and electric motors to accelerate rather than internal combustion engines (ICEs). They have been around for more that 100 years, but battery technology research & development was meager for much of the 20th century. Lithium-ion battery technology became advanced enough to produce EVs at scale in the late 1990s and 2000s, and sales have been steadily increasing since then Tesla’s Roadster was unveiled in 2008. EVs are viewed as a means of reducing carbon emissions since battery electric vehicles (BEVs) themselves produce zero emissions. Other vehicles called plug-in hybrid electric vehicles (PHEVs) utilize both battery electric power and ICEs as a backup.

EVs are growing from a small base, but they rose from 9% of global new auto sales in 2021 to 14% of the total in 2022. This was a 65% YoY growth rate, and the industry delivered 10.2 million EVs worldwide in 2022. Projections show this number climbing above 16 million in 2023. Across the world, market shares differ greatly among nations. Nearly 88% of Norwegian new car sales in 2022 were EVs. On the other hand, the United States, where much of the modern innovation in EVs was forged, had less than 8% of new vehicle sales go to EVs in 2022. The largest EV market in the world, China, saw 30% of the market go to EVs that year.

We know you’re thinking Elon Musk, but he’s probably more like the father of the mass-market, contemporary EV. All the way back in 1827, a Hungarian priest named Anyos Jedlik invented the electric motor and used it the following year to power a vehicle of sorts. French scientist Gaston Planté invented the lead-acid battery in 1859, and German engineer Andreas Flocken built the first true electric car for the public in 1888. EVs made up about 38% of all vehicles sold in the US around 1900. They began losing market share rapidly after 1910 when gasoline-powered vehicles grew much more affordable. They largely died off until new research programs in the 1990s led to gradual private sector investment in the 2000s.

China’s BYD is by far the largest manufacturer of EVs in the world. In 2022 it sold 1.8 million EVs and in the second half of the year made up 20% of the global market. The asterisk given to BYD is that the vast majority of these vehicles are hybrids. Tesla’s 12% market share is often treated as more significant than BYD, because it only sells BEVs and is the most famous EV brand in the world. Volkswagen, BMW and Wuling then round out the top five. As a new sector with heavy investment though, many startups have flooded the market. These include China’s Nio, Li Auto and Xpeng; a Swedish-Chinese manufacturer called Polestar; and Lucid and Rivian from the US.

Rivian stock forecast

Rivian stock has halted its plunge within the $21 to $22 resistance band that held up a rally back in January and February of this year. There is no particular reason why it should become support this time around, but anything is possible. The late September swing low pushed RIVN stock nearly all the way to $20, so there is no good reason that won’t happen again.

Just below there the $19.50 price level support Rivian stock during its late August doldrums. If $19.50 fails to hold, Rivian could jet all the way back to the $15 range. The area from $15.28 to $15.84 worked as support back in January before flipping into an area of resistance during the March through June period. 

The Relative Strength Index (RSI) is showing RIVN stock close to neutral. Dip buyers will likely wait until the convertible bond news tips Rivian stock into an oversold reading on the RSI, which could take a few more sessions of pain.

RIVN daily chart

 



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